ISTANBUL, Sept 13 (Reuters) - Turkey is expected to issue a
lira-denominated sukuk, its second sovereign Islamic bond, by
the end of September and demand for the instrument is likely to
be high, the Turkish unit of Bahraini lender Al Baraka said on
Thursday.

Ayhan Keser, deputy chief executive of Al Baraka in Turkey
, said the issue was expected to be of
around 1.5-2.0 billion lira ($0.8-1.1 bln) with a maturity of
two years.

Al Baraka is one of the four "participation banks" - a term
used in Turkey to refer to Islamic banks - which are expected to
buy most of the lira-denominated sukuk.

"Participation banks have been expecting this instrument.
It's very attractive for participation banks, because it has a
secondary market, and because of its zero risk from a capital
ratio perspective," Keser told reporters.

The issue was expected to take place a week after Turkey's
first-ever dollar-denominated sovereign Sukuk, he said.

Turkey this month mandated Citigroup, HSBC and Kuwait's
Liquidity House to manage the sale of its first-ever sovereign
sukuk. Banking sources told Reuters the dollar-denominated sukuk
would be issued in the week of Sept. 17.

The debut dollar-denominated sovereign sukuk will have a
maturity of 5-1/2 years, bankers told Reuters on Thursday, with
a roadshow set to conclude on Sunday and pricing expected as
soon as next week.

Prime Minister Tayyip Erdogan's government, which espouses
Islamic values, shied away from a sovereign sukuk during its
first decade in power, for fear of giving ammunition to critics
who accuse it of seeking to roll back state secularism.

Because of these sensitivities, sukuk are referred to as
"participation certificates".

"There were talks between the treasury and the participation
banks. The treasury is about to complete preparations to issue a
lira-denominated sukuk this month. The issue will take place
before the end of September. Participation banks will buy most
of the issue," said a high-ranking official from one
participation bank.

The planned sukuk sales should give Turkey access to a wider
pool of investors via a global sukuk market estimated at more
than $100 billion.

They will also set a benchmark for future sukuk issues by
banks and companies.

Turkey's treasury raised a total of $4.6 billion this year
by selling Eurobonds, in line with its external borrowing target
of $4.5 billion in 2012.

Because Islamic law bans the payment of interest, investors
in a sharia-compliant sukuk acquire partial ownership of an
underlying asset and share in its returns rather than receiving
a stream of coupon payments.

There are four participation banks now operating in Turkey:
Albaraka Turk, Bank Asya, Kuveyt Turk and
Turkiye Finans. Kuveyt Turk, a unit of Kuwait Finance House
, issued the country's first sukuk in 2010.